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or in a statement attached to the return”, and (2) “there is a
reasonable basis for the tax treatment of such item by the
taxpayer.” Sec. 6662(d)(2)(B). Where a taxpayer can show there
is reasonable cause for any portion of the underpayment and that
the taxpayer acted in good faith with respect to that portion of
the underpayment, then no penalty shall be imposed under section
6662(a) with respect to that portion of the underpayment. Sec.
6664(c).
Petitioners did not report any income for any of the years
in issue. They chose to hide their income by attributing their
earnings to a sham trust and failed to provide any books or
records of Lucky Kirt Trust, or even the trust document itself.
Moreover, petitioners did not offer any substantial authority or
reasonable cause for failing to report their income.
Accordingly, they are liable for a penalty under section 6662 for
each of the years in issue. Respondent is sustained on this
issue.
VII. Section 6673 Penalty
Section 6673 allows this Court to award a penalty to the
United States in an amount not in excess of $25,000 for
proceedings instituted by the taxpayer primarily for delay or for
proceedings in which the taxpayer’s position is frivolous or
groundless. “A petition to the Tax Court, or a tax return, is
frivolous if it is contrary to established law and unsupported by
a reasoned, colorable argument for change in the law.” Coleman
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